Risk.net July/August 2016

Best Analytics Tool Best Stress Testing Product Best Overall Product of the Year he Awards honour excellence in op risk overhaul of risk and compliance, says James Oates, global head of management, regulation and service compliance and operational risk control at UBS in New York. Since then, provision. Firms were invited to submit entries between the has reorganised its risk and compliance functions, devised a February and April, with the final winners chosen using a new firm-wide risk taxonomy, revamped its risk and control assessments, Ttwin-track methodology during May (see box, p2). and stepped up its monitoring of employee behaviour and conduct. As always, this year’s awards reflect the ebb and flow of industry trends While have always been relatively adroit when it comes to in op risk. One of those is the Basel Committee on Banking Supervision’s operational risk management, buy-side institutions have also grown decision to propose scrapping the advanced measurement approach – the increasingly sophisticated. own-models approach to op risk capital, which effectively allows banks For the first time, this year’s Operational Risk Awards feature the that can model their op risk to hold smaller capital buffers. categories of Asset manager of the Year and Insurer of the Year. Both of our Op risk practitioners worry about the adverse impact this could have on winners, New York-based asset manager AllianceBernstein and US-based banks’ future investment in op risk modelling. Going forward, they fear it insurer MassMutual, provide strong examples of op risk management in will lead firms to place less emphasis on modelling and techniques such as action across the broader industry. ■ scenario analysis. But this year’s Regulator of the Year, the Australian Prudential Regula- Methodology tion Authority (Apra), has always valued op risk modelling and scenario analysis in their own right (see page 10). It is keen to stress their use as tools for improving firms’ understanding of op risk, and bringing the views The awards were divided into practitioner and vendor categories. Practitioner of frontline businesspeople and op risk professionals together. This categories, comprising Bank of the Year, Asset manager of the Year, Insurer of the emphasis on the value of modelling has not gone unheeded by Australia’s Year and Regulator of the Year, were judged by a panel of Risk.net journalists who banks, some of which say they plan to continue investing to better undertook extensive due diligence, including follow-up interviews with the com- comprehend their op risk exposures. panies involved. Other award winners also see the value of op risk modelling, despite Vendor categories, including awards for law firms, consultancies and technology the Basel Committee’s controversial proposal. This year’s Paper of the Year providers, were judged by a carefully selected panel of op risk practitioners and award goes to Riaan de Jongh, Tertius de Wet, Kevin Panman and Helgard other industry experts. Raubenheimer – researchers at South Africa’s North-West University and In all cases, judges considered the extent to which each entrant had dem- Stellenbosch University – who appear to have found an effective shortcut onstrated excellence and met the criteria laid out for the category or categories for approximating op risk capital (see page 12). The technique promises entered. Judges were allowed to make their final decisions based on all of the eye-catching benefits, both in terms of time and computing power. information at their disposal and not solely on the details contained in the entry. After an explosion of manipulation, mis-selling and rogue trading The only exception to this twin-track process was the award for Paper of the scandals earlier this decade, many banks have sought to renew their Year. This award is judged by the editorial board of the Journal of Operational Risk operational risk programmes and move towards a bigger focus on culture and has traditionally been used to recognise an outstanding contribution to the and conduct. This year’s Bank of the Year, UBS, is a prime example publication each year. (see page 3). There, a $2.3 billion rogue trading loss, caused by London-based synthetic equities trader Kweku Adoboli in 2011, presaged a major Cover image: Shutterstock/ToskanaINC. Awards ceremony photos: Lucy Stewart

risk.net 1 Best Risk Analytics Tool, Best Stress Testing Product, Best Overall Product of the Year OpCapital Analytics

n March 4, the Basel Committee on Banking Supervision unveiled substantial revisions to the operational risk capital framework, Ocentred around a new Standardised Measurement Approach (SMA), designed to generate risk- sensitive capital levels that are more consistent across banks and jurisdictions. The proposals would remove the internal model-based approach altogether, but banks will still need sophisticated modelling capabilities to calculate their exposures. That’s good news for The Analytics Boutique, a niche technology vendor focused on advanced operational risk metrics. “The SMA itself is a very simple calculation, but it is likely that many supervisors will require banks, under Pillar 2 of the framework, to use The Analytics Boutique founder Rafael Cavestany (centre) with Vijay Krishnaswany (left) advanced risk-sensitive models to clearly identify and Daniel Rodriguez (right) their largest and most dangerous exposures, so risk mitigation can be directed to those points,” scenario analysis to meet the requirements of its process,” Cavestany explains. says Rafael Cavestany, founder and director of regulator. Using OpCapital Analytics as its The removal of internal models from the The Analytics Boutique. modelling tool, the bank was able to complete operational risk capital framework will certainly A fully owned subsidiary of London-based the project in only eight weeks in mid-2015. have an impact on the way OpCapital Analytics consulting firm True North Partners, The Cavestany estimates that building a model of is used in the future. But practitioners argue Analytics Boutique has been operational since such a scale and complexity could typically take banks will still find value in modelling their op early 2012, and its product, OpCapital Analytics, up to 12 months, but by installing the system in risk exposures – in which case, OpCapital has been implemented at 10 institutions, the bank’s own IT environment and training its Analytics may continue to be a popular tool. including banks and insurance companies. staff to use it, The Analytics Boutique was able The product is designed to be accessible to Led by Cavestany and innovation director to facilitate a much quicker process. non-specialists, and has also been built to meet Daniel Rodriguez, The Analytics Boutique “Many vendors provide a simple analytics tool the requirements of a range of modelling and benefits from its links with True North Partners, with limited functionality and it is left up to stress-testing regimes. as many firms will access the consultancy first the client to do all of the coding necessary to “In many banks we find it is only a small before tapping the technology. build an appropriate model, which can be very group of people with mathematical coding skills In one instance, a large global bank needed to time-consuming and prone to errors. Our that can run the models, which introduces a build a hybrid operational risk model very product is tailored to be more user-friendly, so human dependency that can be a risk if those quickly using internal and external data and the institution can really own the analytics people leave. Many supervisors require banks to avoid black boxes and make sure models are well understood, so there is clearly a need for more “Our product is tailored to be more user-friendly, so the institution can accessible, understandable and transparent really own the analytics process” Rafael Cavestany, The Analytics Boutique solutions in this area,” says Cavestany. ■

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